1. By- ABINASH SWAIN NIT ROURKELA
“INFLATION & BANKING”
By- ABINASH SWAIN
NIT ROURKELA

2. INFLATION: Meaning Causes: with reference to Banking
Role of RBI: Monetary Policy
Role of the Govt. : Fiscal Policy
Relationship with growth
Effects of inflation : good or bad?
Combating procedure

3. Inflation
Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every rupee you own buys a smaller percentage of a good or service.
Many developing countries use changes in the Consumer Price Index (CPI) as their central measure of inflation. India used WPI (Wholesale Price Index )as the measure for inflation , but new CPI(combined) is declared as the new standard for measuring inflation ( April 2014) .India uses changes in the  Wholesale Price Index (WPI) to measure its rate of inflation.
Add current scenario , inflation rate

4. Calculations:
The WPI measures the price of a representative basket of wholesale goods. In India, this basket is composed of three groups:
1. Primary Articles (20.1% of total weight),
2.Fuel and Power (14.9%) and
3.Manufactured Products (65%)
Food Articles from the Primary Articles Group account for 14.3% of the total weight. The most important components of the Manufactured Products Group are Chemicals and Chemical products (12%); Basic Metals, Alloys and Metal Products (10.8%); Machinery and Machine Tools (8.9%); Textiles (7.3%) and Transport, Equipment and Parts (5.2%).
WPI numbers are typically measured weekly by the Ministry of Commerce and Industry. This makes it more timely than the lagging and infrequent CPI statistic.

5. Macro causes of inflation:
Demand pull effect
Cost push effect

6. Role of Banks to regulate Inflation?

7. BANKS
Central Bank of India
Commercial Banks

8. ROLE OF RBI
Why a central bank?

9. RBI and banks: Transaction
Interest Rates
Cash Reserve Ratio (CRR)
Repo Rate
Reverse repo rate
How these rates are used to combat inflation?
What we need is to reduce the money supply. Or less money should be there with banks so that they can lend less money to investments and money supply decreases. Check how these rates are to be controlled to take more money out of commercial banks.

10. Interest Rates & Inflation
Effect of change in lending rate
Effect of change in saving rate
Add statistics of current rate and inflation rate. Why govt and industries are forcing Rajan to again reduce interest rate for growth as inflation is low for a long time.

11. Explain the chain: if r decreases=> more money to investors=> E inc=>…..growth and inflation increases.

12. What does RBI do with interest rate to stabilize inflation?

13. Effect of change of these rates:
CRR- Cash Reserve Ratio
RR- Repo rate
RRR- Reverse repo rate
Add current scenario

15. RBI and Government Government: Growth
(But growth can be possible at the cost of poor people)
RBI- Price stability, low inflation
Fiscal policy & monetary policy
Govt aims at growth, where more output can be made. If it spends more on public, specifically poor welfare ( no output or profit) , so growth will be less. So if GDP growth % is less, it might mean that govt is spending more on welfare. So indirectly govt. wants high inflation. Add data of

16. Commercial Banks & Govt.
Statutory Liquidity Ratio (SLR)
How it helps in combating inflation?

17. Anything good about high Inflation?
GDP/growth and Inflation
Another interesting point : later
Add data of previous years

20. If you have money and price of goods is high=> inflation is high and growth is high (normal case) , if in recession: demand > supply with less money to spend=> inflation is high and growth is less.

21. Current scenario
Increase in inflation shows growth in manufacturing sectors as well as result of constant lowering of interest rates. Now inflation is 3.78% (low), govt and industries are forcing RBI to lower interest rate further.

22. The Rajan Magic:
It is difficult to maintain inflation low and simultaneously hoping for high growth. But he made it possible.
Also mention: due to decrease in oil price, FOREX incresed hence CURRENT ACCOUNT DEFICIT decreased from 4.8% GDP to 0.2% GDP.

23. Steps by Rajan:

24. The rating they give:

25. One last interesting fact!
Inflation hike is the indirect outcome of the consequence of devaluation of own currency.
It is done by circulation of more money in the economy.
Example: china and India
It helps increase FOREX (foreign exchange reserve) => Export increases => current account deficit decreases

26. Case study of the fact!
Monetary policy after the Pokhran Blasts in This has been regarded as the root cause of inflation crisis rather than the domestic inflation.
According to some experts the policy of RBI to absorb all dollars coming into the Indian Economy contributes to the appreciation of the rupee.
When the US dollar has shrieked by a margin of 30%, Reserve Bank of India had made a massive injection of dollar in the economy make it highly liquid and this further triggered off inflation in non-traded goods.
The RBI picture clearly portrays for subsidizing exports with a weak dollar-exchange rate. All these account for a dangerous inflationary policies being followed by the central bank of the country.

27. Keywords & current values
Interest rate- commercial banks decide (nearly 10% )
Cash Reserve Ratio- 4%
Repo rate- 7.25% (recently decreased from 7.5%)
Reverse repo rate-6.25% (RR-1 % normally)
Statutory liquidity ratio %
FOREX value bn$ -Sept 2015
INFLATION- 3.78% -August 2015
Growth expectation for current FY-nearly 7%

28. Thank you!